HAWTHORNE — Controversy has arisen over the city staff's handling of a long-delayed project that would provide much-needed housing for the elderly.

Under plans submitted to the Planning Commission in May, developer Michael Keehner, who has been working on the project with the city for three years, would build and then own a 60-unit apartment building that she estimates would cost $2.5 million to construct.

She would receive land and other concessions worth about $400,000 from the city and a one-time state grant of $557,000 to subsidize rents at 18 of the units. The project would be built on a one-acre site on Doty Avenue about a block south of El Segundo Boulevard, which the city bought in 1983 with $357,000 in federal community development block grant funds.

Agreement on Need

But the project, which has been discussed at three Planning Commission sessions and a City Council meeting, has been criticized by members of both bodies. The critics contend that city administrators have failed to keep the council informed on key decisions, that the city would be giving too much to the developer and that the proposed building could be built for $2 million rather than the $2.5 million.

The officials, who all agree that senior housing is needed, differ on whether the city should try to make a go of it with Keehner or seek a new developer.

Keehner has a preliminary agreement with the city that expires June 30. If a final agreement--spelling out detailed financing and construction plans--is not concluded before then, the city will be able to seek new developers, according to City Atty. Michael Adamson.

Hopes Project 'Not Dead'

At the May 19 council meeting, Mayor Betty Ainsworth said other developers should be allowed to bid on the project.

But Councilman Chuck Bookhammer favors continuing with Keehner.

"I would love to see this development go forward rather than see us go another two or three years. . . . I really hope we can continue to work with the developer and come up with a satisfactory set of plans," Bookhammer said. "I hope the project is not dead."

The city's efforts to build senior housing began in 1981, City Manager Kenneth Jue said, when then-Mayor Joe Miller convened a meeting of local developers to see if they could come up with any proposals.

Jim Mitsch, the city's chief of general services and public works, said that shortly afterward, Keehner served as an unpaid consultant to the city. The county supervisors' office had recommended that the city contact her, Mitsch said.

Keehner, who in addition to experience as a developer had been a consultant in formulating subsidized housing proposals in Central California, worked with Mitsch, Jue and then-Planning Director Jim Marquez. On June 6, 1983, Jue asked the council to authorize him to buy the Doty Avenue site for senior housing.

Council Vote Promised

Jue promised that the city would advertise for proposals from developers before selecting one, according to a tape recording of the session. Jue also said that he would bring any agreement with a developer back to the council for a vote.

But neither promise was kept, according to a review of city records and the recollection of city officials.

"As far as I can recall, I don't remember seeing anything about it being put out to bid," said Bookhammer.

Instead, without seeking proposals from other developers, Mitsch and Jue chose Keehner.

On Nov. 4, 1983, Mitsch signed a preliminary agreement with Keehner giving her the exclusive right to negotiate with the city. The agreement also permitted the city to get out of it if precise deadlines, planning procedures and financial arrangements could not be worked out.

No Council Vote

The agreement has never been brought to the council for a vote, according to Mitsch.

Attorney Adamson said that the city code does not require such projects to be put out for bid and that Mitsch had the legal power to bind the city by signing an agreement even if it has not been approved by the City Council.

Councilwoman Ginny Lambert criticized the process.

"It is most unfortunate . . . to have been placed in a position of ignorance regarding plans for the senior-citizen housing," she said.

"We should have kept the city council better informed," Jue said. "I really don't remember anything of the details. . . . The project was basically placed with Mr. Mitsch to put it together. Perhaps I didn't take as strong an interest in it as I should have."

No Consultations

"As I understand it," said Lambert, "Mr. Mitsch is spearheading this program with all good intentions, but without consulting with anyone else."

Mitsch acknowledged that the project was not put out for bid and the council did not vote on the agreement with the developer.

However, he said, the council was told about the developer during the course of several council meetings and briefings with council members.